If you pay taxes in both the US and France, you may be due significant refunds for French taxes paid!
For years, a battle has been working its way through the US courts concerning two French taxes, the French Contribution Sociale Généralisée (CSG) and Contribution au Remboursement de la Dette Sociale (CRDS).
The reason for the battle? Relief against double taxation. In some instances, US taxpayers who also pay taxes in France may claim foreign tax credits (FTCs) on their US tax returns. This helps to obtain relief from double taxation.
One caveat, however, is that this relief applies only to income taxes, not to social taxes. For years, the US Internal Revenue Service (IRS) has maintained that the CSG and CRDS are social taxes, not income taxes. And cannot be used to claim foreign tax credits.
Now, the IRS has changed its position.
The decision in the US Tax Court case Eshel v. Commissioner and 2019 diplomatic negotiations between the US and France changed things. Before then, the IRS maintained a policy of challenging taxpayers who tried to claim foreign tax credits for the CSG and CRDS.
This June, diplomatic negotiations bore fruit. The IRS reached an agreement with the French government not to challenge foreign tax credits for certain types of tax payments in France. This is excellent news for US taxpayers who are or were assessed these French taxes on French wages. It is also great news if you have substitute income, professional fees, statutory family benefits, and investment income.
It means that the French CSG and CRDS taxes are eligible for the US foreign tax credit and you may be due refunds for French taxes.
You May be Eligible for US Tax Refunds
US taxpayers who did not previously claim foreign tax credits for CSG and CRDS taxes on their US individual income tax returns (Forms 1040 and 1116) can now file amended US returns. This will help them to obtain refunds for French taxes.
In most cases, US taxpayers can only obtain refunds for the last three tax years, but in this case, the IRS has made a special exception. It is allowing individuals to go as far back as the tax year 2009 to amend their tax returns (IRS Forms 1040X and 1116) for this issue.
What Do I Need to Do to Obtain My Refunds for French Taxes?
Since the IRS is allowing you to go back more than three years to obtain your refunds, you must follow the correct steps. Otherwise, your older refund claims may be denied.
Most important, at the top of each amended tax return, you should write the following in red ink: French CSG/CRDS Taxes.
Taxpayers amending tax returns between 2009 and 2018 for this issue should maintain the following documentation for each year at issue in case of audit or exam of foreign tax re-determination:
- Avis d’impôt sur le revenue—French Income Tax Return
- Déclaration des revenus—Income Statement
- Bordereau de situation—Statement of Payments
- Bulletin de paie—Earnings Statement
It is important to note that the deadline for filing older, amended returns is a “moving deadline.” This means that each year when the tax season ends, there is one less year you can include. For example, on October 16, 2019 (the day after the extension due date), you will no longer be able to include your 2009 tax return (assuming you filed an extension for 2009). If you did not file an extension, the deadline to include your 2009 return has passed (it was April 16, 2019).
If you want more details, the IRS website provides information on the foreign tax credit. There are specifics on what foreign taxes qualify for the foreign tax credit. There is also a list of where the US has entered into agreements with other nations to avoid double taxation of income concerning social security taxes.
The Wolf Group can assist US taxpayers who are or were assessed these French taxes and who would like to know if they can get refunds for French taxes. Please contact us to schedule an appointment or to prepare your amended returns.